| Zydus Healthcare Limited | ||||||
| Long-term rating upgraded to 'CRISIL AAA/Stable'; Short-term rating reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has upgraded its rating on the long term bank loan facilities of Zydus Healthcare Ltd (ZHL) to ‘CRISIL AAA/Stable’ from ‘CRISIL AA+/Positive’ while reaffirming its short term rating at 'CRISIL A1+'.
The rating upgrade follows a similar rating action for its parent, Zydus Lifesciences Ltd (Zydus Life; ‘CRISIL AAA/Stable/CRISIL A1+’). CRISIL Ratings has factored in comfort from the strong parentage of Zydus Life while assessing the overall credit risk profile of ZHL, given its strategic importance to the parent. ZHL is a 100% subsidiary of Zydus Life and is likely to receive need-based financial support from the parent.
The company operates in the domestic market; operating income grew moderately at 6% on-year in fiscal 2023, on a high base, with opportunity to sell Covid-19 products no longer available. Operating income grew at a modest 4% on-year in the first half of fiscal 2024 and is expected to grow 7-9% annually over the medium term driven by established brands, regular price hikes and new product launches. ZHL has realigned its generics business by demerging it to a subsidiary while it continues to focus on branded formulations. Operating margin declined but remained healthy at 31.1% in fiscal 2023 (against 33% in fiscal 2022) and is expected at 30-32% over the medium term. The financial risk profile remains strong with nil debt and healthy liquidity as on March 31, 2023.
The ratings reflect the healthy operating profitability of ZHL leading to comfortable debt protection metrics. These strengths are partially offset by exposure to regulatory risks. |
Analytical Approach CRISIL Ratings has applied its criteria for notching-up ratings based on parent support and has adjusted goodwill, net of amortisation, to arrive at adjusted networth. |
Key Rating Drivers & Detailed Description Strengths:
Weakness:
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Liquidity: Superior Liquidity will remain strong driven by healthy cash accrual, nil term debt obligation and need-based support from Zydus Life. Liquid surplus was Rs 299 crore as on March 31, 2023. Bank limit of Rs 300 crore was utilised negligibly as working capital requirement was met through internal accrual and credit from suppliers. The company has a moderate working capital cycle, as reflected in receivables and inventory of 27 days and 61 days, respectively, as on March 31, 2023. Company does not have any major capex plans over the medium term. |
Outlook: Stable ZHL will continue to benefit from its strong market position in the domestic formulations segment. The company will remain strategically important to Zydus Life and will continue to receive strong support from the parent. |
Rating Sensitivity factors Downward factors:
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About the Company ZHL was set up in 2007 as a partnership between Cadila Healthcare (96% ownership), its wholly owned subsidiary, German Remedies Ltd (2%), and Cadila Healthcare Staff Welfare Trust (2%). In February 2016, ZHL was merged with Cadila Healthcare, which held the entire stake in the amalgamated entity. In November 2016, the human formulations business under the group was consolidated under ZHL, a 100% subsidiary of Zydus Life (erstwhile Cadila Healthcare). Based in Mumbai, ZHL manufactures formulations for the domestic market. |
About Zydus Life Cadila Laboratories was founded in 1952 by Mr Raman Patel and Mr Indravadan Modi. Cadila Healthcare was incorporated in 1995 following the split of Cadila Laboratories, with Mr Modi and his family's share being moved to a new company. The division that was managed by Mr Raman Patel’s son, Mr Pankaj Patel, was renamed Cadila Healthcare, which was again renamed Zydus Life in February 2022. The company is currently under the leadership of Dr. Sharvil Patel, a third-generation promoter. Zydus Life got listed on the Bombay Stock Exchange in 2000. Over the years, Zydus Life has grown to become one of the leading pharmaceutical companies in India. It also has a growing presence in the regulated markets, particularly the US, and is one of the top five players in the US generic market in terms of prescriptions. Other segments include emerging markets formulations, consumer wellness, animal healthcare and bulk drugs. Zydus group has 15 formulation manufacturing units, 1 animal health unit, 6 bulk drug manufacturing units, 3 biologics units, 5 vaccine units and 4 consumer product facilities in India. Additionally, it has one formulation manufacturing unit each in Myanmar and Brazil. Apart from this, the company has 7 R&D centres in Gujarat and Maharashtra and 1 R&D centre in Italy.
As on September 30, 2023, 74.98% stake in Zydus Life was held by the promoters, 6.86% by insurance companies, 5.94% by mutual funds, and the balance was held by the public and others. |
Key Financial Indicators
*Adjusted for goodwill amortisation |
Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
* Fully interchangeable with working capital demand loan ** Fully interchangeable with bank guarantee |
| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||
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Criteria Details
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